C&S Flashcards
Outcome Economy
Economy contingent on the marketing, pricing and selling of goods and services based on the results or outcomes they produce for customers, rather than on an item or service’s face value
Impetus on understanding the customer and quantifying results in real time
Efficient Market
Share prices reflect all relevant information. Weak form means that past prices have no effect on future prices, semi-strong form means that markets adjust quickly to new information, strong form means that prices reflect all relevant information immediately
Important when considering if share price accurately reflects the information in the case, why or why not?
Economic Efficiency
Resources are allocated in the best way possible without any waste or inefficiency
Identify the problems that arise when this is not the case
Market Failure
An inefficient distribution of good or services in the free market. Individual rational behavior does not lead to rational outcomes for the group.
Externalities, monopoly privileges, information asymmetries and factor immobility
Free Rider Problem
When some individuals consume more or pay less than their fair share of a shared resource. People taking advantage of being able to use a common resource or collective good
Pharma IP rights, Fishbanks - usually require some form of government intervention
Externalities
A positive or negative consequence of an economic activity experienced by an unrelated third party
Pollution by a bottling factory - does not affect producer or consumer but affects the nearby residents and is therefore a negative externality
R&D - positive externality generated by companies spending billions on research that can be copied for free
Information Asymmetry
Decisions in transactions where on party has more or better information than the other. Two conditions must be met:
Information needs to have value
There must be no cost effective way for other party to acquire the credible information they are missing
Taxi industry
Factor Immobility
When it is difficult for factors of production to move between different areas of the economy. Can be geographic (one area to another) or occupational (one type of work to another).
Important when considering production issues
Silver Bullet
Direct and effortless solution to a problem
Prof likes to use this to describe when something is not a silver bullet
Arbitrage
A trade that profits by exploiting the price differences of identical or similar processes in different markets or in different forms
Rana plaza wage arbitrage
Toxic Assets
Assets that become illiquid because they are widely perceived as a guaranteed way of losing money
Fishbanks boats when fish populations decline
Tragedy of the Commons
Generally involving a shared resource, when individuals neglect the well being of society for personal gain
Fishbanks
Social Norm
A prevailing social behavior or customer that influences our day to day behavior
Can solve the tragedy of the commons theoretically
Game Theory
Models an effective competitive strategy among rational player
Nash Equilibrium
Where individuals can receive no incremental benefit from changing their actional assuming all other players in the game remain consistent in their strategies
Fish banks overfishing
Tit For Tat Strategy
Agent begins by cooperating and subsequently replicates his opponents previous action
An effective strategy in the prisoner’s dilemma
Regulatory Capture
Form of government failure where a regulatory group made to act in the public’s interest instead acts on the interests of of the commercial or political group that dominate the given industry or sector
Think about it whenever you have a regulatory committee
Common Property Resource
Natural resource owned and managed collectively by a community or society instead of individuals
Goes hand in hand with tragedy of commons and free rider problem forms of market failure
Market Mechanism
The process by which a market solves the problem of allocating resources
For example deciding how much of a good or service should be produced
